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Policy & Politics

Making it happen: Mukhipata waterfall

The water-related problem was solved through borewells but in the waterfall, Rumana Zafri, Block Development Officer, could visualise a whole new opportunity. The block administration decided to present the beauty of Mukhipata waterfall before the world and develop it as a tourist spot.

Anil Swarup



Madanpur Rampur is one of the 13 Blocks of Kalahandi District in Odisha and is located 65 kilometres away from District headquarter, Bhawanipatna. This Block with a population of about 92,000 comprises 19 graam panchayats. There are 235 revenue villages and more than 50 hamlets and forest villages. Nine of these graam panchayats have a considerable hilly tract, thick lush forest, numerous streams and difficult terrain. The Block has predominantly tribal population. It has many remote inaccessible areas and scattered habitation with sparse population in many villages. Lack of proper roads, bridges, mobile network and basic infrastructure, along with presence of left-wing extremism, present enormous challenges towards implementation of various schemes and developmental plans. Many a time, traditional beliefs of the tribal become hinderance to change and implementation of new ideas. Consequently, the block has poor social, health and educational indicators.

Poor living conditions of the people, rampant migration to other districts and a large proportion of dependant population in the Block affects livelihood in a big way. The Covid pandemic further worsened the situation and many households reeled under poverty owing to loss of sustainable livelihood activities.

During an interaction with the Block level officers, the residents of Gandpadar village of Manikera gram panchayat raised the issue of water scarcity. The only possible solution suggested was through sourcing water from some nearby perennial stream. Rumana Zafri, Block Development Officer, Rampur, Sarpanch of Manikera panchayat along with four others set out to look for feasible solutions. After walking for more than five kilometres through dense forest and slippery path, they came across a treasure, Mukhipata Waterfall that remained hidden from the world for so long. Although Mukhipata was closest to Sulesuru village, even to these villagers it was not a known place. This was apparently an unexplored area.

The water related problem was solved through bore wells but in the waterfall, Rumana could visualize a whole new opportunity. The Block administration decided to present the beauty of Mukhipata waterfall before the world and develop it as a tourist spot.

Mukhipata committee was constituted. Road leading to the waterfall was repaired. Entry fee per person and for parking was charged. Small shops selling water and essential food items were opened. Village locals were encouraged to sell tea and meals at subsidised rates to tourists. The place was promoted through social media.

Results were immediately visible and within a short span of time Mukhipata started receiving a lot of visitors from both within and outside the Block. These visitors in turn promoted it on social media. The shopkeepers earned a decent living and the entry fee collected was used to maintain cleanliness and to develop Mukhipata. In less than one month, Mukhipata waterfall became one of the most visited places of Kalahandi District

The dream of turning it into a tourist spot had been fulfilled, but the intention to strengthen livelihood activities around Mukhipata waterfall was yet to be realised. Hence, the idea of a rural “haat” near Mukhipata was conceived. This was to open every Saturday and Sunday of the week as these two days witnessed maximum number of visitors.

The focus of the rural “haat” was to generate livelihood activities, regain lost indigenous art and crafts of the area and to promote forest products that were available in plenty in Madanpur Rampur block.

A new mission to create rural “haat” at Mukhipata took off. Villages like Jamguda, Jambahali, Dangapata for bamboo crafts, Mohangiri for dhokra art and Madanpur for terracotta products were identified. Nodal officer was assigned for each such village.

Individual artisans and ladies of SHG groups who produced crafts from wool, wood, paper, waste materials were also encouraged to sell their products at this “haat”. Food stalls preparing local cuisine were given priority. Villagers and artisans were motivated to make those products which they once did, but had stopped making due to failure to find a market for them. The toughest part was to make the villagers believe that the products would sell this time at the “haat”. This was done through multiple visits to the villages and interacting with them personally. To continuously monitor the progress and to check relapse in attitude, they were motivated through phone calls, video calls, voice and video message etc. Apart from this, regular village point meetings were convened and short videos were made to suggest to the artisans that new and innovative products would fetch more price.

The idea was to let the artisans work for five days and sell their products for two days. At some places, tagging through SHG was done. The artisans/ producer groups could directly sell at rural “haat” or the tagged SHGs would buy the products directly from them, make value addition, like painting the products etc and sell them at Mukhipata rural “haat”. Mukhipata committee would buy the leftover articles from the artisans on Sunday evening and sell them during the rest of the days of the week.

The rural “haat” opened during the first week of January this year has been a huge success. More than 70 different products were displayed for sale. The customers came from different walks of life, within and outside the district and of all age groups. The artisans were overwhelmed by the sale. Their goods had never fetched such a price and earned praise for their indigenous crafts and forest products. This also restored their faith in their abilities to make these products. A permanent platform was now available for their livelihood. They could now prosper and grow.

More than 500 families have already benefitted from the rural “haat” and many more counting. Now trainers have been arranged to help the artisans reach new levels of innovation and efforts are being taken to cover other villages which were left out in the first phase of identification.

The story does not end here. It is a new beginning. Mukhipata waterfall, through various Government schemes shall have all weather road, sanitary complex, solar water system and electricity installed shortly and will attract more tourists and artisans in the coming days. From being lost in oblivion it shall emerge as the centre of attraction.

Rumana Zafri and her team have clearly demonstrated that civil servants can make it happen even in remote parts of the country. It requires vision, commitment, meticulous planning and taking stake holders into confidence. The Odisha Livelihood Mission (OLM) came handy in fulfilment of the dream that Rumana had.

Anil Swarup has served as the head of the Project Monitoring Group, which is currently under the Prime Minister’s Offic. He has also served as Secretary, Ministry of Coal and Secretary, Ministry of School Education.

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Policy & Politics

Rising global demand for copper, zinc, other non-ferrous metals helps engineering exports: EEPC India

Tarun Nangia



A sharp rise in global demand for non-ferrous metals like copper, aluminium and zinc along with their products , has greatly helped the Indian engineering exports brave through the Covid-19 pandemic hit world trade, an EEPC India analysis has shown.

A near 16 per cent increase in overall engineering exports during January,2021 over the same month last year was influenced by a sharp rise of 66.66 per cent in shipments of copper/products to USD 138.50 million from USD 83.10 million. Likewise, zinc and products witnessed a rise of 39 per cent in shipments to USD 72.17 million from USD 52 million. Exports of aluminium and products went up by 21 per cent to USD 512 million from 423 million for the month, on annualised basis.

‘’The non -ferrous metals are in great demand in the international market thanks to their usage in electric vehicles and their batteries as the world moves towards cleaner energy, “ EEPC India Chairman Mr Mahesh Desai said.

Malaysia,South Korea,China, the US and Singapore are the top destinations for export of non-ferrous metals from India.

Iron and steel, the largest contributor to the country’s engineering exports, too saw an impressive increase of 17.47 per cent in shipments during the month under review on Y on Y basis. These shipments went up to USD 847 million from USD 721 million for the month.

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Policy & Politics


Tarun Nangia



Amitabh Kant, CEO, NITI Aayog on Monday said that India’s wastewater treatment plants market stood at $2.4 billion in 2019 and is projected to reach $4.3 billion by 2025 owing to increasing demand for municipal water as well as sewage water treatment plants across the country. “There will be a huge gap of investments in this market and the private sector can fill this gap in terms of technology selection, fund rotation and implementation,” he added.

Kant said that climate change along with rapid population and economic growth is resulting in an increased demand for water and food, potentially leading to over stressing not only for our present resources but also jeopardizing the resources for future generations. “Therefore, a move towards a circular economy is critical for ensuring the economic and social stability of not only four economy but for the world economy as a whole,” he added while addressing the valedictory session ‘6th Edition of India Industry Water Conclave & 8th Edition of FICCI Water Awards’,

Kant said that to encourage circular economy, there is a need to develop an enabling framework that uses smart regulations, market-based instruments, research and innovation, incentives, information exchange for voluntary approaches. “To implement the circular economy and achieve sustainable industrial renaissance we should rely on proactive businesses and consumers with a special focus on small and medium sized enterprises implementing circular economy solutions,” he added.

Kant said that in circular economy innovations, our goals should be to design ways through the value chain rather than relying on the solutions at the end of the product life. This, he said can be achieved by reducing the quantity of water required to deliver services, reducing the use of energy in production, creating a market for secondary raw materials, incentivising and supporting waste reduction and high-quality separation by consumers along with facilitating the clustering of activities to prevent by-products from becoming waste. “Exploring and accessing alternate water sources is highly required,” he added.

Kant further stated that there is a need for rationalization in freshwater allocation for drinking in urban and rural areas with due proportion to industry. “Efficient use of water in agriculture should also be encouraged by adopting micro irrigation methods. All these uses should be interdependent for recycling and reuse of wastewater,” he noted.

To achieve the SDG 6.3 targets significant investments will be required in new infrastructure, grey and green and locally appropriate combinations along with appropriate technologies to increase the treatment in use of water. Inadequate sanitation resulting in poor hygienic practice leads to huge economic and social losses for the country, he said.

Collection, treatment, and reuse of municipal wastewater provides an opportunity for not only environmental rehabilitation but also meeting the increasing water needs of different economic sectors, added Mr Kant.

Rajendra Singh, Water Man of India said that for the country to become water sufficient nation, we have to ensure to use retreat, recycle and reuse the C-class water category. We must focus on using the B-class water for agriculture and A-class which comprises of fresh water should be kept separated from other classes of water. He also stated that in agriculture we must focus on reducing the use of water through new technology and skill development. “We need to link the crop pattern with rain pattern to ensure efficiency,” he added.

Rajiv Ranjan Mishra, DG, National Mission for Clean Ganga, Department of Water Resources, River Development and Ganga Rejuvenation, Ministry of Jal Shakti said that we are trying to develop a national framework for reuse of treated wastewater, and we are also working on developing national sludge management framework. “The government is not only developing policy but also supporting programs and we want to bring more private sector under these programs. Partnership is the key and does not only include public private partnership, but it should be public, private and people at large,” he added.

Naina Lal Kidwai, Chair, FICCI Water Mission and Past President, FICCI said that many state policies have come up for recycle and reuse of water, however a comprehensive policy which integrates all policies which exists in various ministries should be brought out which focusses on resource recovery model and not just on recycle and reuse of water. “There is also a need to develop a central water regulatory authority to cater these water issues,” she added.

Kidwai stated that Champions should be present in every city from both the private and public sector to create awareness related to water issues along with mobilization of community in addressing them is the need of the hour. She also noted that the potential of wastewater management in India is huge and this is an area for the industry to explore. “Water sector, if, made investor friendly by equitable sharing of risks between the investor, technology provider and Government, can bring in more private sectors investments in water projects,” she said.

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Policy & Politics


Tarun Nangia



In a communication sent to Union Finance Minister Nirmala Sitharaman today, the Confederation of All India Traders (CAIT) candidly accepted that over almost 4 years of GST implementation in India, the current registration of dealers under GST is almost 1.30 crore is much less than the volume of people engaged in business activities pertaining to goods & services whereas the current accrued revenue of Rs 1.15 lakh crore per month through GST is also highly insufficient. These figures of both tax base and revenue can be increased substantially provided both Central & State Governments should work closely to provide ease of doing business and widening the tax base and earning more revenue .

CAIT National President B C Bhartia & Secretary General Praveen Khandelwal in communication to Mrs Sitharaman said that there are about 8 crore traders, 1 crore transporters and 1.25 crore small Industries in the Country beside having a large corporate structure and large number of service providers engaged in business activities pertaining to sale & purchase of goods & services in the Country and large number of other sectors providing taxable services in India. Under such a vast spectrum of trade, industry and services that exists as on today, it is strange that so far only 1.30 crore people have obtain GST Registration. Even if it assumed that might be half of this huge number might be under the prescribed threshold limit, yet there exists quite huge number which should come under ambit of GST.

Both Mr Bhartia & Mr Khandelwal said that over last 4 years of GST implementation in the Country, the tax base should have been at leat 2.5 crore and the accrued revenue should be above Rs 2 lakh crore per month. Therefore, a serious discussion should be held between stakeholders and the Government that whether there are genuine roadblocks in adopting GST as a taxation system and what are the core areas where large number of people are avoiding registration under GST.

Mr Bhartia & Mr Khandelwal said that though traders and people of other vertical of trade & industry etc are more willing to join the ambit of GST because of its nature which is giving every trader in the system to avail facility of input credit. However, no step was taken in last 4 years to launch neither a statewide nor a nationwide drive to enroll people in GST and any awakening drive and in the meantime, the system has become complicated.

The CAIT has suggested that the GST Council should take assistance of more than 40 thousand trade organisation of trading community in widening the tax base and generation of more substantial revenue to both Central & State Governments but the Government and GST Council will have to take an initiative.

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Policy & Politics

Making it Happen: Genome Valley, the biotech hub of India

The story of the Genome Valley began two decades ago in a sleepy village of Shameerpet Mandal called Turkapally, about 30 km from Hyderabad. An intrepid NRI scientist Dr Krishna Ella decided to return to India and set up his biotech industry (Bharat Biotech) in 1996, little realising then that his would be the anchor industry in the global biotech hub.

Anil Swarup



A world class life science cluster in the outskirts of Hyderabad would have gone unnoticed but for COVID. This is the place where, led by Bharat Biotech, 4 out of 6 home grown vaccines are being developed (some already developed and being manufactured). Genome valley has about a third of world’s vaccine manufacturing capacity and is bound to play a major role in the months to come to control the pandemic. All this did not happen overnight.

The story of the Genome Valley began two decades ago in a sleepy village of Shameerpet mandal called Turkapally, about 30 kms from Hyderabad. An intrepid NRI scientist Dr Krishna Ella decided to return to India and set up his biotech industry (Bharat Biotech) in 1996, little realizing then that his would be the anchor industry in the global biotech hub.

It was around this time that an IAS Officer, B P Acharya made a fortuitous entry into the scene in his capacity as Secretary, Industries and Commerce. Despite being a trifle apprehensive, he gave his best shot. Meanwhile, the ICICI Knowledge Park, the first R&D park of the country, had come up in May 2000, near Bharat Biotech and about 150 acres of Government land was earmarked next to it to develop as Biotech park on the new-fangled Public- Private partnership mode. Draft biotech policy of the State was ready and Ernst & Young was chosen as Consultants to guide the State in this sector. A biotech advisory committee headed by eminent scientist Dr D Balasubramanian (former Director, CCMB) was also set up to ensure industry- academia-government interface.

For the next 4-5 years, team Genome Valley, led by B P Acharya worked as men (and women) possessed to build up the cluster bit by bit, brick by brick.

The first task was to get the Biotech policy of the State finalized. Utkarsh and Vishal of E&Y helped immensely to finalize the document called “Beyond Tomorrow” (BT) that provided the basis to attract investments to the State in this sector. This sowed the seeds of the Genome Valley Project. Competition came from Karnataka. The Project was road-showed at BIO, San Diego. World renowned personalities in bio-tech like Dr Clause Plate of Germany and Dr Robert Naismith of the USA became its supporters.

The team was quick to realize that promotion without actual development on ground won’t take them far. Hence, each of the elements that could make the cluster viable was considered. The first step was to finalize the developer of the Biotech park under the PPP mode. Shapoorji Pallonji (SP), then headed by Cyrus Mistry, came around after several rounds of discussions. They finally agreed to build, operate and market what was known then as SP biotech park over 150 acres allotted to them adjacent to the ICICI Knowledge Park (now called IKP).

As this was the first of its kind Biotech cluster in India, attempt was made to bench mark it against the best in the world. Research Triangle Park in North Carolina was visited in 2002. By this time, the first of the allottees in Biotech Park started their manufacturing units.

These included the one set up by Dr Ella’s Bharat Biotech in what was to become a vibrant Life Sciences cluster in a few years. But there were issues like water supply, pollution control, fire station, cafeteria, housing etc, that had to be addressed. The whole area was declared as pollution free zone to make it suitable for Life science sector. Fortunately, B P Acharya utilized his subsequent assignment (MD, HMWS&SB) in 2004-5. It enabled him to complete the project to draw water from a distance of about 20 kms (Alwal reservoir of Water Board). A felt need of the cluster was met. This paved the way for its growth and expansion in the years to come. Meanwhile, it was felt necessary to hold a regular event to show case Genome Valley. That is how Bio Asia (which has grown to be one the major global shows over the years) and FABA (Federation of Asian Biotech Associations) were born.

Soon the area allotted for biotech park was fully occupied and there was a need to plan for its expansion. When Acharya came back to Industry sector again in 2005, this time as MD, APIIC, he could earmark 100 acres of land next to ICICI KP in Lalgadi Malakpet , as Biotech Park Phase 2 ( partly notified as SEZ) and later 150 acres in the nearby village of Karkapatla for Phase 3. This is now fully occupied and search is on for identifying land for the next phase.

In Phase 2, a major vaccine manufacturing facility was set up by Biological E. This is now collaborating with Johnson & Johnson for their Covid vaccine. In Phase 3, Indian Immunologicals has also set up a major vaccine manufacturing unit and is also involved with another Covid vaccine candidate. In Phase 2, 100 acres were allotted by State government to ICMR for setting up the National Animal Research Facility (NARF), the largest of its kind in India, that will be a big boon for the Biopharma industry for pre-clinical trials etc.

Thus, over the last two decades, the Genome Valley has emerged as a truly global life sciences hub, the only one its kind in India. Today it hosts over 300 companies, including major international players. It provides employment to over 20,000 persons, either directly or indirectly.

It is indeed a proud moment for all those involved in this venture since its inception. The initiative taken almost a couple of decades ago is in the forefront of the battle against the pandemic. The story of the Genome Valley is also an example of building a viable ecosystem for a successful industrial cluster. It entailed careful planning and implementing each of the elements essential for its growth and meticulously placing bits and pieces of this big jigsaw puzzle together. B P Acharya and his committed team demonstrated that officers can make-it-happen

Anil Swarup has served as the head of the Project Monitoring Group, which is currently under the Prime Minister’s Offic. He has also served as Secretary, Ministry of Coal and Secretary, Ministry of School Education.

The first task was to get the biotech policy of the state finalised. Utkarsh and Vishal of E&Y helped immensely to finalise the document called “Beyond Tomorrow” that provided the basis to attract investments to the state in this sector. This sowed the seeds of the Genome Valley Project. Competition came from Karnataka. The project was road-showed at BIO, San Diego. World-renowned personalities in biotech like Dr Clause Plate of Germany and Dr Robert Naismith of the US became its supporters.

The whole area was declared pollution-free zone to make it suitable for the life science sector. Fortunately, B P Acharya utilised his subsequent assignment (MD, HMWS&SB) in 2004-5. It enabled him to complete the project to draw water from a distance of about 20 km (Alwal reservoir of Water Board).

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Policy & Politics

Indian apparels should target Colombia’s fashion industry: Ambassador Sanjiv Ranjan

B2B meeting held between Indian apparel exporters and Colombian buyers.

Tarun Nangia



Indian Ambassador to Colombia Sanjiv Ranjan said that there is a huge potential for Indian apparel exporters in Colombia, particularly in its “resilient and innovative” fashion industry with domestic sales of about $7 billion.Speaking at ‘India-Colombia Synergies in Apparel and Textiles’, a virtual B2B meeting organized by Apparel Export Promotion Council (AEPC) and Embassy of India, Bogota, Colombia, on Monday evening, Mr Ranjan said that the readymade garment exports from India were limited to around $21 million in 2019.

“India’s apparel exports to Colombia is just 3% of its global imports. This does not really reflect the strength of what our sector stands for. We have a huge untapped potential in this sector which requires to be explored and utilized by our exporters,” he said.

Highlighting the growing popularity of Indian apparels in Colombia, Ranjan said that the apparel exporters should focus on Colombia’s fashion industry that accounts for 9.4% of the country’s industrial GDP and employs about 600,000 people. The annual household expenditure on fashion in Columbia is roughly 24.3 trillion Columbian peso.

“It is one of the most vibrant sectors of the region. Columbia has a robust network of almost 14,000 companies in the fashion industry, mostly in the small and medium sized categories. Even during the peak of the pandemic in June 2020, clothing accounted for nearly 57% of the total fashion spending followed by jewelry. While the government is trying at its level, the private sector should find out how to contribute to this resilient and innovative sector,” the ambassador said.

Ranjan congratulated AEPC for setting up a virtual exhibition platform to showcase Indian apparels to overseas buyers at a time when physical presence is restricted.

“I am sure that this virtual, 24×7 platform offers more experience at one place, with the flexibility for importers to zoom in and look at the various products on offer. This will go a long way in further energizing our bilateral engagement in the apparel sector,” he said.

AEPC Chairman Dr A Sakthivel informed the attending Colombian brands and buyers that AEPC through its virtual platform will work as a bridge between the Indian apparel exporters and Colombian apparel importers. About 320 apparel exporters have already put up their products for exhibition on the platform, he said.

“On our request, the government has come out with a production linked incentive (PLI) scheme for manmade fibre (MMF) based garments. We do 85% cotton garments and only 15% MMF garments, while the global apparel demand is exactly the opposite. Very soon we will see a rise in exports of MMF garments from India,” Dr Sakthivel said.

Sudhir Sekhri, Chairman (Export Promotion), AEPC, said, “Of the top 10 apparel imports from India to Colombia, only two are in the MMF category and the rest are cotton garments. Perhaps this is where Bangladesh and Vietnam are scoring ahead of us. This is one area that we are trying to address very quickly along with the help from the government.”

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Policy & Politics

Bad banks for good economy

The government is currently mulling over adopting the ARC/AMC model for bad banks. This entity will be set up to take over the stressed assets from the books of public sector banks and try to resolve them like any other ARC. This will require considerable regulatory overhaul and adequate capitalisation.



The Government of India has recently announced that India is set to have its first Bad Bank. While the decision is received with great fervor by some, many have shown their worry, if not discontent with the concept of Bad bank.

Bad bank concept dates back to 1988 where Mellon Bank used a bad bank strategy to separate $1.4 billion of bad loans to a subsidiary entity. The concept has made it’s come back with every financial crisis. In the USA, a bad bank was suggested as part of the Emergency Economic Stabilization Act of 2008 to help address the subprime mortgage crisis. Republic of Ireland had its first bank, the National Asset Management Agency in 2009. Spain too established an entity called ‘SAREB’ to which troubled and illiquid assets were transferred. Pandemic has amplified the already existing economic stress and rekindled the debate of efficacy of bad banks for resolving NPA conundrum. Bad banks aids in renewed focus on long-term core operations of the good bank without getting stressed about the troubled assets. Removing troubled assets from the balance sheet infuses more optimism from credit rating agencies, investors, lenders, depositors as well as borrowers. It relieves pressure on capital, enabling the institution to engage in more profitable and growth-oriented business activities and further lending.

There is a case for the institution of bad banks in the present circumstances mainly owing to the size of Gross Non-Performing Assets (GNPA) which is equal to the roughly 27 lakh crore, almost 14% of present GDP. As NPAs rise, Banks need additional capital for provisioning which effectively curtails their lending power. In a country like India where credit growth is very much important to achieve its potential GDP growth, the inability of the Banking sector in lending will hamper its growth to a large extent. Financial Stability Report states that gross NPAs of the banking sector are expected to shoot up to 13.5% of advances by September 2021, from 7.5% in September 2020, under the baseline scenario, as “a multi-speed recovery is struggling to gain traction” amidst the pandemic. The report warned that if the macroeconomic environment worsens into a severe stress scenario, the ratio may escalate to 14.8%. To avoid this, a one -time solution of creating a bad bank to clean the balance sheet of the banks is a welcome step.


Bad banks can be used as one time tool to “clean up” the balance sheet. However, if we use this as a recurring model, it could lead to wrong incentives for the bankers to undertake risky lending and transfer the same to bad banks. It is only an “emergency medicine” and not a “staple diet”. As per current status, bad loans of Rs. 500 crore and above will be eligible for resolution by this entity, with an estimated total corpus of Rs.25 trillion. It will be wise that banks must stress test their portfolios and take a forward looking approach in determining risky assets.


The success and efficacy of bad banks in India would depend on the choice of structure which must be made taking into consideration independence of institution and veracious price discovery.

Choice of model depends on two decision factors. First is to decide whether or not to keep the bad assets on the bank’s balance sheet. Moving assets off the balance sheet is better for investors and counterparties and provides more transparency into the bank’s core operations. But it is more complex and expensive. Second, whether the bad-bank assets will be housed and managed in a banking entity or a special purpose vehicle (SPV). Secondly, whether to house and manage the bad-bank assets in a banking entity or to accomplish the transfer of risk in a less concrete manner.

The government is currently mulling over adopting the ARC/AMC model for bad banks. This entity will be set up to take over the stressed assets from the books of public sector banks and try to resolve them like any other ARC. This will require considerable regulatory overhaul and adequate capitalisation.

For adopting AMC model based bad bank, Acharya suggested two models of bad bank. The first is a private asset management company (PAMC), which is said to be suitable for stressed sectors where the assets are likely to have an economic value in the short run, with moderate levels of debt forgiveness. The second model is the National Asset Management Company (NAMC), which would be necessary for sectors where the problem is not just one of excess capacity but possibly also of economically unviable assets in the short to medium terms.

Further, when a bad loan is sold off to bad banks, it can either focus on recovery or consider it to repackage and monetize it through issue of new securities. If the objective of a bad bank is to recover, it will have to adopt the IBC route and given the attitude of committee of creditors that focuses on upfront payment or less haircut and the efficiency of courts, the recovery will be a herculean task. If the bad bank looks at a longer objective to monetize the bad debt till the recovery happens, it requires a sophisticated debt market that will allow easy sale and purchase of such securities.


Funding for the bad bank will be the biggest challenge to begin with. The bad bank must be well capitalised. It will obtain a limited amount of capital from reserves allocated to the acquired assets. Currently, there is lack of clarity on the funding of such banks. While the government is unwilling to inject any initial equity in such banks, the role of such banks is also unclear- whether they will just hold the asset on the balance sheet and concentrate on recovery or whether they will raise securities back by these assets. A bad bank is typically funded primarily by selling equity or debt securities. Experience from past crises shows that private investors who experienced significant losses as a result of sizable investments in financial institutions, are reluctant to step forward and invest in troubled institutions. Instead, investment in discrete pools of assets may attract private investors interested in targeted and concentrated ownership with significant control over the new entity. There should be limited regulatory oversight. Whatever the case may be, it will be wise if public sector banks together do not hold more than a 51% stake in the bad bank to allow for more flexibility.


For functioning of bad banks, the bad loans will be required to be sold below the book value. Given that most of the PSU bankers fear CVC, they are less eager to make any concession on the count of their accountability and constantly (and perhaps understandably) avoid taking decisions. This may become a hurdle for the banks. Thus, participation by the PSU banks in bad banks will need to come with greater clarity of role and responsibilities to the bankers. If the bad banks run into the private banking sphere, there will be more freedom for players to take bold and dynamic decisions.


There could be a high possibility that the bad bank may recover less than the transfer value of the troubled asset. In such a case, the good bank should be required to make the bad bank whole. For such a solution to be implemented, new accounting guidance would be required permitting such a transfer, notwithstanding the retained interest on such transactions.

There have also been models suggested wherein existing shareholders get to participate in working of bad banks and are given interests in the new bad bank, as well as rights to subscribe for new shares of the good bank. It would be easier to attract private capital to the good bank than to the bad bank, limiting the cost to the government, a key consideration given the scope of the current crisis.

In such a design, losses on the bad bank assets would be borne first by pre-existing shareholders, rather than by new investors. Given that any risk of loss to bad bank debt holders may reduce the ability of financial institutions to borrow in the future, it is suggested that bad banks should not be as highly leveraged.


Banking sector in India could not grow to its full potential initially due to over protection and later due to over regulation. Time is right to undo the mistakes of the past and set the policy goal of preventing moral hazard arising from government intervention.

The current government has shown a bold front by eschewing the old protectionist approach and embracing dynamic options for developing the financial market. Whatever its final form, the creation of the Bad Bank may serve as a model and springboard from which creative private investors may partner with financial institutions interested in structures that can be tailored to individual circumstances. However, Bad Banks should not be a source or incentive for careless lending by the banks. There should be a time frame by which bad banks should be dissolved.

While the decision to have a bad bank is good in principle, its success will depend on the way it is executed. Given that execution and quality control is our Achilles heel, it will not be an easy task to ensure success of bad banks on the ground.

Dr Neeti Shikha and Urvashi Shahi work with the Centre for Insolvency & Bankruptcy, Indian Institute of Corporate Affairs. Rahul Prakash is Ph.D candidate at University of Texas. Views are Personal.

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